2008 was the worst: year ever, for Wall Street, for movies, for restaurants, celebrities, malware, for women, for children, for relationships, for newspaper history, for the environment, for Arts, for ad revenue, for CDs, IPOs, MMOs, the GOP (duh!), for hurricanes, (almost) for weather related disasters, number of disaster victims, the nerd elite, Italian military helicopters, the vain and the venal, for guerillas and bear encounters.Follow the links and be dismayed.
4. Noodle Bars are the new Sushi Joints
With some seafood being suspect or overfished and raw fish prices high, noodles make complete sense. If there's no ramen, udon, or soba shop in your neck of the woods, there will be soon.
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Nevertheless, the act added poison to the emptying well of global trade (see chart). The worldwide protection of the 1930s took decades to dismantle. And bad monetary and fiscal policies were at least based on the economic orthodoxy of the day: economists would tear each other apart over the heresies of John Maynard Keynes. On protection, there was no such division. More than a thousand economists petitioned Hoover not to sign the Smoot-Hawley bill. Bankers like Lamont sided with them; so did editorialists by the score.Their ghosts still haunt us, as protectionism not only lives, but currently thrives, to the horror of modern economists just like their predecessors. The incoming administration would have to surprise most observers to put liberalizing trade issues as a high priority. Reading the accounts from the thirties also leaves the uncomfortable suspicion economists have not gained much, if any respect over the years.
The “asinine” bill began as a much smaller beast: the plan was to help American agriculture, which had slumped in the early 1920s. Congress passed several bills to support prices and subsidise exports, but all were vetoed by Calvin Coolidge, Hoover’s predecessor. With no obvious logic—most American farmers faced little competition from imports—attention shifted to securing for agriculture the same sort of protection as for manufacturing, where tariffs were on average twice as high. To many of its supporters, “tariff equality” meant reducing industrial duties as well as raising those on farm goods. “But so soon as ever the tariff schedules were cast into the melting-pot of revision,” this newspaper wrote, “logrollers and politicians set to work stirring with all their might.” [More]
The deepening economic downturn has been hard on a lot of people, but it has been hard in a particular way for economists. For most of us, pain and apprehension have been mixed with a sense of grim amazement at the complexity of what has unfolded: the dense, invisible lattice connecting house prices to insurance companies to job losses to car sales, the inscrutability of the financial instruments that helped to spread the poison, the sense that the ratings agencies and regulatory bodies were overmatched by events, the wild gyrations of the stock market in the past few months. It's hard enough to understand what's happening, and it seems absurd to think we could have seen it coming beforehand. The vast majority of us, after all, are not experts.
But academic economists are. And with very few exceptions, they did not predict the crisis, either. Some warned of a housing bubble, but almost none foresaw the resulting cataclysm. An entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of our lifetime. And, now that we're in the middle of it, many frankly admit that they're not sure how to prevent things from getting worse. [More]
So some economists have concluded that expanding the money supply is the worst option except for the others. Kenneth Rogoff of Harvard writes that "a sudden burst of moderate inflation would be extremely helpful." Casey Mulligan of the University of Chicago says, "Inflation will alleviate some economic problems; prolonged deflation will aggravate them."
Gregory Mankiw, who was chairman of the Council of Economic Advisers under President Bush, urges the Federal Reserve to abandon price stability and commit itself to modest inflation. David Henderson of the Hoover Institution says that if the choice is more federal spending or rising prices, he prefers the latter.
It's not hard to see why. Most of our problems stem from the bursting of the housing bubble. That sent home prices plunging, which reduced the value of mortgages and mortgage-backed securities, which caused losses at banks, which forced a cutback in lending, which squelched consumer spending, which brought the economy to a halt. Which started the whole miserable cycle over again.
But if the crisis stems from declining real estate values, why not stop them from declining? A spell of inflation would arrest the slide by pushing up the price of everything. As home prices stabilize, mortgage-backed securities would regain value, banks would get financially stronger, and loan officers would stop hiding in the vault.
Consumer spending would also revive. In the first place, those who want to buy new cars or remodel their kitchens would be able to borrow money to do so. In the second, people whose money is eroding in value would be motivated to spend today rather than tomorrow—the opposite of the incentive when prices are falling, as they are today. [More][Links added]
5. "No! No! No! Bear Stearns is not in trouble." —Jim Cramer, CNBC commentator, Mar. 11, 2008
Five days later, JPMorgan Chase (JPM) took over Bear Stearns with government help, nearly wiping out shareholders. [Complete list]
“If [Hillary Clinton] gets a race against John Edwards and Barack Obama, she’s going to be the nominee. Gore is the only threat to her, then. … Barack Obama is not going to beat Hillary Clinton in a single Democratic primary. I’ll predict that right now.” —William Kristol, Fox News Sunday, Dec. 17, 2006 [Another list, some overlap]
"For all intents and purposes, McCain's campaign is over. The physicians have pulled up the sheet; the executors of the estate are taking over. Paying bills and winding down - not strategizing, organizing, and getting the message out - will be the order of the day," - Charlie Cook, National Journal, last July. [Still time to vote here]
The 53-year-old investor, who asked not to be identified to protect his stake, took out about $600,000 this year from his $1.5 million account, using some of it to pay down a mortgage. He and other Madoff clients who withdrew funds as long as six years ago may be sued on behalf of other victims to return profits and even principal, securities and bankruptcy lawyers say.As "clawbacks" leave painful "clawmarks" on victims, the hard lesson is being broadcast globally. Now couple that with the general contempt for Wall Street denizens and corporate leadership and you have a decreasing number of folks you would willingly hand your money to. Arguably, it might be forgotten if roaring good times return next week, but I suspect something has been broken deep in the engine of American commerce.
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Under New York state law, which can be invoked for Madoff recoveries, a trustee can seek redemptions going back six years, said Tracy Klestadt, a New York bankruptcy lawyer.
In a similar case, U.S. Bankruptcy Judge Adlai Hardin in White Plains, New York, ordered investors of defunct hedge-fund manager Bayou Group LLC in October to disgorge profits they’d taken out. Investors were required to pay back any gains they’d redeemed involving “fictitious profits.” Before the fraud was discovered, Bayou paid out more than $135 million, according to court papers.
‘Good Faith’ Rule
Hardin also ruled some investors would have to hand back their principal. Only investors who acted in “good faith” -- a legal standard that makes investors prove they didn’t have knowledge or suspicion of fraud -- could protect their initial stake, Hardin ruled. He said investors could show they had good faith if they didn’t see any “red flags” when they withdrew the funds.
That decision could be a guide for Picard, Klestadt said.
The Bayou decision set a high bar for investors who hope to protect their principal, said Carole Neville, a lawyer representing Bayou investors.[More]
We were wrong. Madoff's pyramid scheme, far broader than anything MMM dreamed up, was made possible by our own tradition of lawfulness. And now he will help bring that tradition down. Here's a prediction: In the coming years, American capitalism will become slower, more cautious, less productive, and less entrepreneurial. We're still a long way from Eastern Europe of the 1990s or from the Latin America or Russia of the present. But maybe not as far as we think. [More of a great article]I tend to agree, and think it will take a decade at least to recover. It might even require generational change to lose the living memory of these fiascoes. Others think we'll be back with our checkbooks at the first sign of a bull market.
If there is a lasting effect from Madoff, it will be to accelerate a shift already well underway: the idea that, when it comes to their money, the only thing many Americans now truly trust is a specific government promise.
In his inaugural address in 1981, President Reagan intoned that "government is not the solution to our problem; government is the problem."
In this financial mess, government is turning out to be the only solution.
There have been runs on plenty of hedge funds this year, but no run on the banks overall, because the government insures deposits and most people (thankfully) still have faith in that insurance.
Likewise, many investors have been happy to sink their savings into low-yielding U.S. Treasury securities because they're confident that, at the very least, Uncle Sam will return their principal intact.
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As for the issue of Wall Street's wretched image, history is clear: It's nothing that a good bull market, somewhere down the line, won't make a lot people forget, if not forgive. [More]
Microsoft (NSDQ: MSFT) in the past week announced yet another life extension for its supposedly retired Windows XP operating system, a sign that, despite almost two years on the market, Windows Vista is a no-go for most businesses. Only 10% of 700 business executives recently surveyed by the Information Technology Industry Council and Sunbelt Software said their companies are using Windows Vista in the enterprise. [More]Now a year into my affair with Apple iMacs, I am pleased by the reliability and performance. Although upgrades can be challenging for satellite users like me, and while some have their own unique hangups, our Macs have been nearly bulletproof.
Even modern-day hunter-gatherers, who in the nature of things don’t inhabit the most promising land, work shorter hours and enjoy happier lifestyles than do the poorest of modern-day subsistence farmers. The problem with the hunter-gatherer lifestyle wasn’t — and isn’t — that it’s too labor intensive, it’s that it was too land-intensive. A hunter-gatherer lifestyle can only support a small number of people on a given parcel of land. If people somewhere start engaging in a more settled lifestyle, what happens is that population density can go way up. That facilitates the division of labor and the creation of specialized warrior castes and so forth. Consequently, a settled society will probably be able to conquer a hunter-gatherer population and/or drive them off their land. Thus, once this quality-of-life-destroying innovation comes into being it tends to spread inexorably. The higher level of inequality agriculture permits allows some people to be better-off than any hunter-gatherer, but average living standards plummet even as pure quantity of people alive goes way up, a la Derek Parfit’s repugnant conclusion. It’s only with the coming of the industrial revolution that societies with higher average quality-of-life than those enjoyed by hunter-gatherers come into existence. And over time, that circle of beneficiaries of industrialization has tended to spread. [More - best stuff in the comments]One commenter pointed out the necessary flaw in the positive picture of hunting/gathering: just how exactly such societies managed to keep their population low. The answer was starvation, disease, and very low infant survival. To be sure those who made it to adulthood may have had better lives and diets, but that's a survivor benefit, not a universal positive.
Five years after blogging went mainstream and more than seven years after the WSJ's editorial page launched Best of the Web Today, the Grey Lady is finally dipping its toe into the editorial blogosphere. If you saw this news story without a date on it, what are the chances that you'd guess it came out at the very tail end of 2009?2. This first widely publicized editor smack-down of a major blogger.
NEW YORK The New York Times is planning to launch a new "Instant Op-Ed" next month that will allow the paper's Web site to post immediate expert viewpoints on breaking news, according to Editorial Page Editor Andrew Rosenthal.I'm old enough to remember when a next-day editorial could be considered "very rapid response", but the readers who will make or break the future of the NYT are not. [More]
"Our Op-Ed now is very rapid response, but it is at the most the next day," said Rosenthal. "We are looking at a way to take advantage of the expandability of the Internet, the back and forth of it and the instantaneous nature of the Internet."
This is Jennifer Palmieri, acting CEO of the Center for American Progress Action Fund.
Most readers know that the views expressed on Matt’s blog are his own and don’t always reflect the views of the Center for American Progress Action Fund. Such is the case with regard to Matt’s comments about Third Way. Our institution has partnered with Third Way on a number of important projects - including a homeland security transition project - and have a great deal of respect for their critical thinking and excellent work product. They are key leaders in the progressive movement and we look forward to working with them in the future. [More]
- That there is no soft landing. We are not in a recession. We are not even in a depression. We are at the end of an era. The Tipping Point is of course the financial collapse. The Vast Ponzi Scheme of our financial world - with the vast sums in the Derivative Market and the Credit Bubble all in effect lost - cannot be saved. There is not enough money in the national accounts to pull this back.
- The search for efficiency and the urge to consume has set us all up like a row of dominoes - there is no buffer, no resiliency. As one problem rises it causes another. As one solution is tried it drives another problem. We all pull back and the consumer economy stalls. The auto industry and credit firms feeds the media (40% of conventional advertising). Papers and TV and Radio networks, many subject to LBO's will have to fail as per the Tribune. Every sector will be laying people off. Sales of all things fall off a cliff - driving more business failures and layoffs. Cities and states that depend on sales tax and property tax and the credit markets can rely on none of these. So they too will have to lay off millions - thus making all the problems worse. National governments will be asked to save us all and of course cannot. As States and Cities get squeezed and cannot borrow, they will too lay off millions - teachers, firemen police. No one will be safe
- As all of this is happening - the web is also sweeping through all businesses and gutting all who made artificial scarcity the heart of their model. This would be enough to drive a revolution but now is only one aspect of a perfect storm. There is no time to feel a way into a new model. A new model has to be found in 2009 or your business will die from this alone.
- The world food system is exceptionally connected and tightly coupled. High fertilizer prices in 2008 will drive a food shortage in 2009. Inventories of grain are already low. The collapse of commerce and credit may risk food supplies in 2009. The 2008 rice problem was a harbinger for what is to come
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I will now attempt what I think is a fair rendition of Detroit's history over the last fifty years. In the early 1950s, for various reasons Detroit developed a cozy three-way oligopoly. The UAW developed a cozy monopoly on supplying labor service to that oligopoly. In some ways, the UAW helped sustain that oligopoly. If you're a big company whose quality suffers, you have problems. But if you have a union making sure that labor quality cannot vary across the industry, you don't need to worry that your competitors will make a better car. Detroit competed on styling and power, not reliability or price.Spoiler: her conclusion is not a happy one.
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Detroit should have reacted, I'm sure, by making smaller cars. But smaller cars were harder to make for Detroit. Buyers thought of them as a non-premium product, which meant they wouldn't pay for the lucrative options packages. And because they used fewer materials, the labor component became a relatively larger part of their cost. Labor was where Detroit was least competitive. According to the automotive analysts I've seen, Detroit still loses money on small cars like the Ford Focus, which are sold at a loss to help make Corporate Average Fuel Efficiency numbers come out.
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But perhaps more importantly, Detroit turned from making money on cars to making money on financing. Detroit didn't make a big profit by selling you a Ford Taurus. It made money on financing your Ford Taurus; often, the car was sold at a loss in order to get the finance business. The Big Three were banks manufacturing cars as a loss leader.
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They also provide capital for selling cars. Dealers have their own independent credit lines, which they use to buy cars, advertise, and so forth. Dealers may be parasites on the body public 95% of the time, but right now, they're probably helping keep the Big Three out of bankruptcy by carrying unsold inventory, not pushing them deeper into it.
But Lewis embraced the Middle Ages’ indiscriminate mixing of stories and motifs from seemingly incompatible sources. The medievals, he once wrote, enthusiastically adopted a habit from late antiquity of “gathering together and harmonizing views of very different origin: building a syncretistic model not only out of Platonic, Aristotelian and Stoical, but out of pagan and Christian elements.”I agree. The mashup of pagan, Christian, commercial, philanthropic, and you-name-it influences continue to help Christmas evolve and maintain relevancy. To be sure, the core strength of this desperately needed winter holiday is anchored in the Christian tradition, but the timing, for example, has always been suspect.
Christmas as we now know it is much the same sort of conglomeration, and when people call for a return to its pure, authentic roots, they’re missing an essential quality of the holiday. Narnia is a mongrel thing, and so is Christmas. As is often the case, this mongrelizing is the source of its strength. [More]
For many centuries, Christian writers accepted that Christmas was the actual date on which Jesus was born.[8] However, in the early eighteenth century, some scholars began proposing alternative explanations. Isaac Newton argued that the date of Christmas was selected to correspond with the winter solstice,[6] which in ancient times was marked on December 25.[9] In 1743, German Protestant Paul Ernst Jablonski argued Christmas was placed on December 25 to correspond with the Roman solar holiday Dies Natalis Solis Invicti and was therefore a "paganization" that debased the true church.[5] In 1889, Louis Duchesne suggested that the date of Christmas was calculated as nine months after the Annunciation on March 25, the traditional date of the conception of Jesus.[10]
Zealous advocates of sustainable agriculture question his support of biotechnology, while partisans of the status quo find him insufficiently loyal to the system of farm subsidies. That leaves him with a very large center of support. He’ll need it to move this country’s broken agricultural policy in a new direction. [More]And the Inaugural Invoker, Rick Warren:
In choosing evangelical pastor Rick Warren to deliver the invocation at his inauguration, President-elect Barack Obama is associating himself with one of the most popular religious figures in the nation, reaching out to conservative America and proving he's willing to take some flak from the liberal flank of his party.
It will be yet another high-profile moment for Mr. Warren, an evangelical leader who opposes abortion and gay marriage but has worked to broaden the Christian agenda to include issues of poverty, AIDS and the environment.
The invocation gives both men the opportunity to build on their longstanding efforts to create big tents and extend their appeal beyond their natural constituencies. As a result, both have taken some criticism from their traditional supporters. [More]
Indulging in just one small chocolate truffle can induce cravings for more sugary and fatty foods—and even awaken a desire for high-end status products, according to a new study in the Journal of Consumer Research.
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When participants were allowed eat a truffle, they unconsciously activated a goal of indulgence, the authors explain. Likewise, those who were asked to resist the treat activated health goals. Once people felt their goals were met, they tended to reverse their behaviors. For example, when people who resisted the truffle were told they did a good job, they indicated that they desired fatty foods more than healthy foods.
"Once people feel like they have achieved a certain goal, they tend to pursue the opposing goal. When asked about their behaviors, no participant related their desires to the initial chocolate consumption, indicating the operation of a non-conscious system that guides people's behaviors," write the authors.
Interestingly, truffles served as triggers for more expensive indulgences as well. "A second study again had people eat or resist a chocolate truffle and asked them to indicate how much they desired several products that are symbols of status (a nice shirt, an Apple computer, a fine watch). People who ate the truffle desired the status products significantly more than those who had to resist the truffle," the authors write.
The researchers believe this new study has important implications for both marketers and consumers. Stores may want to use samples as way to motivate consumers. And consumers may want to resist small acts of indulgence, knowing they can lead to larger ones. [More]This is shocking news for me personally. I am married (to virtually all my friends' astonishment) to a woman who allows herself one truffle a week. On Tuesday night. Not that we're overly organized, mind you.
Enter MESSENGER. This new spacecraft has to swing by the tiny planet three times before it can settle into an orbit, but in the two passes it’s done so far it’s already transformed out knowledge of Mercury. There were so many images to choose from; I considered this detailed overview showing tons of features, or this incredibly feature-laden crater rim segment, or this oblique view of a triply-concentric-crater, or these phenomenal rays blasting out of a young impact feature, or this beautiful view of sunset at a double crater where you can see the mountain shadows on the crater floor.
But in the end, it was the overview of Mercury showing the rays from impact craters blanketing the entire planet that made me sit back in wonder. It was taken as MESSENGER departed the planet for the second time, when it was nearly 28,000 km out. There is something about a large-scale yet detailed image that is truly pleasing to the eye; there is beauty and science together here (and in my mind, the two are nearly indistinguishable). [More]
The new research, led by cognitive scientist Mark Changizi of Rensselaer Polytechnic Institute, shows why direct exposure to repeated ads initially increases a consumer’s preference for promoted products, and why the most effective advertisements are the ones consumers don’t even realize they have seen.As newspapers die from advertising starvation (and customer disappearance - car dealers can account for as much as 40% of newspaper ad revenue) much of the blame is placed on ad dollars flowing to the Internet. But so far, monetizing on-line traffic has not proven easy or as lucrative.
It has long been known that repeated visual exposure to an object can affect an observer’s preference for it, initially rapidly increasing preference, and then eventually lowering preference again. This can give way to short-lived fads. But while this may seem illogical, Changizi argues that it makes perfect cognitive sense.
“A rational animal ought to prefer something in proportion to the probable payoff of acting to obtain it,” said Changizi, assistant professor of cognitive science at Rensselaer and lead author of the study, which appears in the online version of the journal Perception. “The frequency at which one is visually exposed to an object can provide evidence about this expected payoff, and our brains have evolved mechanisms that exploit this information, rationally modulating our preferences.”
A small number of visual exposures to an object typically raises the probability of acquiring the object, which enhances preference, according to Changizi.
On the other hand, Changizi says overexposure to an object provides the brain with evidence that the object is overabundant, and is likely not valuable, thereby lowering the individual’s preference for it. [More]
"You can't believe this, but it's happening in Washington," Schumer said. "It effectively amounts to a tax on cows when they belch."Steve joins in the we-don't need-no-stinkin'-proof crowd with uncharacteristic gracelessness.
His comments left EPA officials bewildered.The EPA denied it has any such tax plan for regulating farm animals. "EPA is not proposing a cow tax," the agency said in a statement. Moreover, the agency may not even have the authority to impose such fees.So where did Schumer get his information? It seems the only mention of possibly regulating farm animals as a source of greenhouse gases came from the U.S. Department of Agriculture in comments to the EPA.The USDA recommended against such a move as the EPA begins exploring how it might regulate all greenhouse gases as pollution - complying with a U.S. Supreme Court ruling from 2007.Once USDA made its comments, several advocacy groups for farmers figured it was time to take action - before anyone got any ideas of an animal tax. Schumer was quick to support their effort.When Schumer was told that EPA officials said their early planning had been distorted, and that the agency has no intention of suggesting such a tax, New York's senior senator said he knows better. [More] [My emphasis]
It looks like the “cow tax” brouhaha was a bit premature, but don’t think there may not be some fire where the smoke seems to have cleared. [More]Ok, let's assume Steve and Sen. Schumer are right and the EPA is a collective of lying weasels. They could be for all I know, but that's not the real point here.
Hartwig said RFA has suggested a number of steps including setting up a $1 billion short-term credit facility so ethanol producers could finance current operations; a $50 billion federal loan guarantee program to finance investment in new renewable fuel production capacity and supporting infrastructure; and a requirement that any auto maker receiving federal aid only produce new vehicles that can run on any blend up to 85% ethanol, beginning with the 2010 model season.From my perspective, this is a problem an order of magnitude greater than the imaginary cow-tax. You open up the Treasury to ethanol manufacturers and plant construction will take off again, followed shortly by rising corn prices.
The price of ethanol has dropped with the price of oil, squeezing producers’ profit margins. Critics note that the U.S. ethanol industry already benefits from a number of fairly generous federal subsidies, including a tax credit paid to gasoline producers for blending gasoline with ethanol; a federal renewable-fuel standard that sets a minimum amount of ethanol to be blended into gasoline; and a 54-cents-per-gallon tariff on imported ethanol.
The RFA is one of many business groups looking for help in the financial stimulus legislation expected to move through Congress early next year. It’s not clear how much support RFA has for its proposals; calls to several senior lawmakers close to the industry weren’t immediately returned. [More]
Even if you tried, it might seem that Madoff would have been impossible to catch. But at least two warning signals flashed for anyone to see.
First, Madoff’s accounting firm, Friehling & Horowitz in New City, New York, was a rinky-dink shop, as a simple Google search shows. The firm doesn’t have a Web page. I found it on a junky site that lists local businesses by type and address, along with the boilerplate comment, “rated as good by a New City citizen.” That’s an unlikely auditor for the $17 billion that Madoff claimed to have under management. When the fraud came to light, F&H turned out to be a tiny office which, neighbors said, wasn’t even open all the time. (The office didn’t answer its phone.)
Second, Madoff held your securities (or what he claimed were your securities) in his own advisory firm. That’s not the way reliable advisers handle publicly traded investments. The custodian should always be a large, independent financial institution that reports cash flows and trading activity to you directly. When you invest new money, you should make out the check to that account. [More]
I think these are fine points, but they also reflect precisely the sort of misconceptions that books like Outliers and Fooled By Randomness are aimed at clearing up. We look at successful people and see that they share certain common elements. From that, it’s easy to infer that the successful succeeded because of these characteristics in a way that’s unduly strong. We forget to look at all the other people who also share those characteristics.
To get rich in the United States you pretty much have to work hard. But the idea that success is due to hard work ignores the fact that there are all these other people working hard and not succeeding. Hard work is much more common than success. And advantages of birth and dumb luck are making the difference — separating the hard-working partner at the corporate law firm from the hard-working guy who moved the furniture into the law firm’s office. Similarly, if you only look at the successful traders on Wall Street you’ll probably decide they got rich because they’re smart — these firms usually try to hire smart guys who went to good schools. But if you look at the failures, you’ll see that they’re smart guys who went to good schools, too. The difference between the two groups is luck. [More]
